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VT LEG #328104 v.2
Report of the Minimum Wage and Benefits Cliff Study
Committee
December 2017
Senator Michael Sirotkin, Chair Representative Helen Head, Vice
Chair
Senator Brian Collamore Representative Brian Keefe Senator Ann
Cummings Representative Jean O’Sullivan
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VT LEG #328104 v.2
Table of Contents
I. Executive
Summary..................................................................................................................1
II. Background
............................................................................................................................1
A. History of the Minimum Wage in Vermont
...............................................................1
B. Current Wage Conditions in
Vermont.........................................................................3
C. The Minimum Wage in Other States
..........................................................................9
D. Studies of Effects of Raising the Minimum Wage
..................................................10
E. Programs that Help Low-Income Households
.........................................................15 F.
Recent Minimum Wage Bills in Vermont
................................................................19
III. Statutory Authority and Responsibilities of the Committee
................................................20
IV. Summary of Committee Activities
......................................................................................20
V. Issues for Consideration in Crafting a Minimum Wage Policy
............................................22
A. Tipped Employees
.....................................................................................................22
B. Cost to
State...............................................................................................................22
C. Cross-Border
Issues...................................................................................................25
D. “Pause Button”
...........................................................................................................26
E. Inflation Adjustments
................................................................................................27
F. Regional Variations
...................................................................................................28
G. Business
Size.............................................................................................................29
H. Timetable & Amount
...................................................................................………..29
I. Benefits Cliff
..............................................................................................................29
J. Benefit Offset
.............................................................................................................31
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VT LEG #328104 v.2
VI. Minimum Wage Policy Proposals and Their Impacts
.........................................................32
A. $12.50 by 2021
..........................................................................................................32
B. $13.25 by 2022
..........................................................................................................33
C. $15.00 by 2022
..........................................................................................................33
D. Increasing the Minimum Wage Annually by the Greater of the
CPI or five percent, or
by the Greater of the CPI or six
percent....................................................................34
VII. Policy Recommendations
...................................................................................................36
VIII. Appendices
Appendix 1: 2017 Acts and Resolves No. 69, Sec. F.1
Appendix 2: Witness List
Appendix 3: Size of Private Businesses in Vermont Appendix 4:
ARIS Solutions Data on Payroll for Various Programs
Appendix 5: Kavet, Rockler & Associates, LLC, October 2,
2017 Memorandum
Appendix 6: Kavet, Rockler & Associates, LLC, March 13, 2014
Memorandum
Appendix 7: Kavet, Rockler & Associates, LLC, February 8,
2017 Memorandum
Appendix 8: Cooper, David: Understanding the Needs for Higher
Wage Standards Appendix 9: Comparing the Vermont Minimum Wage to
Other Measures, 1959–2016
Appendix 10: Minimum Wage Increases in Other States
Appendix 11: Massachusetts Ballot Initiative: Initiative
Petition for a Law Raising the
Minimum Wage
Appendix 12: Summary of New York State Wage Determination
Procedures
Appendix 13: Manchester, Joyce, “Preliminary Summary Review: Two
Studies on the
Effects of Raising the Minimum Wage to $13 per Hour in
Seattle”
Appendix 14: Vermont Minimum Wage Bills Introduced in 2017
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VT LEG #328104 v.2
Appendix 15: Leonard, Damien, “Memorandum Regarding Minimum Wage
Initiatives in New Hampshire and Massachusetts, and the Fiscal
Off-Ramp in
California’s Minimum Wage Law”
Appendix 16: Assessment of Budgetary Impact on Addison Northwest
Supervisory Union from an Increase in the Minimum Wage to $15.00 in
2018
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VT LEG #328104 v.2
I. Executive Summary
During the summer and fall of 2017, the Minimum Wage and
Benefits Cliff Study Committee (Committee) met five times to
discuss various proposals for increasing the minimum wage in
the
State of Vermont and the impacts of such proposals on public
benefits received by low-income families.1 The Committee recommends
the following for the 2018 adjourned session:
The General Assembly should enact legislation to increase the
minimum wage to $15.00
within the parameters of the five policy proposals outlined in
Section VI of this report.2
The legislation should include a provision that, within
available funding, will shift the
point at which benefits provided through the Child Care
Financial Assistance Program begin to decline by the same
percentage as the increase in the minimum wage to ensure
that affected families continue to receive the same child care
subsidy. II. Background
A. History of the Minimum Wage in Vermont
The federal minimum wage of $0.25 per hour took effect on
October 24, 1938. Since then it has periodically been increased to
its current amount of $7.25. Vermont enacted its own minimum
wage statute in Act 32 of 1959, at a rate of $1.00 per hour.
Vermont’s minimum wage was increased most recently by Act 176 of
2014; pursuant to that Act, the Vermont minimum wage is
currently $10.00 and will rise to $10.50 on January 1, 2018 (see
Figure 1).3 Under the current law, beginning on January 1, 2019,
Vermont’s minimum wage will annually increase by five percent or by
the percentage increase in the Consumer Price Index, whichever is
smaller.4
Service or tipped employees in Vermont must receive a basic wage
equal to at least one-half the
minimum wage, before tips.5 If the amount of a service or tipped
employee’s tips plus the basic tipped wage is less than the amount
of the minimum wage, then his or her employer must make up the
difference so that the service or tipped employee earns at least
the minimum wage.
From January 1, 1959 through January 1, 2016, Vermont’s nominal
minimum wage increased at
an average rate of 4.6 percent per year. When adjusted for
inflation by the Consumer Price Index,6 the minimum wage increased
at an average rate of 0.8 percent per year. By comparison,
1 Information regarding the Committee’s hearings and submitted
documents are available at
http://www.leg.state.vt.us/jfo/min_wage_notebook.aspx. 2 The
Committee voted 4-2 in favor of this proposal, with Senator
Collamore and Representative Keefe voting against
recommending a change to Vermont’s existing minimum wage law. 3
21 V.S.A. § 384(a).
4 Id.
5 A service or tipped employee is defined as “an employee of a
hotel, motel, tourist place, or restaurant who
customarily and regularly receives more than $120.00 per month
in tips for direct and personal customer service.”
21 V.S.A. § 384(a). 6 Various materials submitted to the
Committee referred to either the Consumer Price Index or the PCE
Deflator. The
Consumer Price Index for All Urban Consumers (CPI-U) is a
measure of the price of a basket of consumer goods and
services purchased by households. In the past, the CPI has
tended to overstate inflation because the market basket of
goods and services did not keep up with changes in the
purchasing decisions of consumers. Going forward, the bias
is less pronounced because changes in methods over the last 30
years better reflect quality and consumer choice. The
PCE Deflator is a price index produced by the Bureau of Economic
Analysis that is used by the Federal Reserve to
http://www.leg.state.vt.us/jfo/min_wage_notebook.aspx
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VT LEG #328104 v.2
when adjusted for inflation, both U.S. nonfarm business
productivity and the U.S. GDP increased by an average of 1.5
percent per year over the same period, and Vermont’s per capita
personal
income increased by 2.1 percent per year. In 1968, the minimum
wage in Vermont was $1.60 in 1968 dollars. If the minimum wage had
kept pace with inflation as measured by the CPI since
1968, the minimum wage in 2017 would have been $11.36 rather
than $10.00.
From 2004 through 2016, Vermont’s minimum wage increased by an
inflation-adjusted average of 0.9 percent per year, while the
hourly wage at the 10th and 25th percentiles increased by 0.4
percent per year, and the hourly wage at the 90th percentile
increased by 0.9 percent per year.7 The hourly wage at the 10th
percentile, for example, is the hourly wage at which 10 percent of
workers earn less than the given hourly wage.
measure consumer inflation. In addition to spending by
households, the PCE measures spending on behalf of
households, such as medical care paid for by employers or
government programs. The PCE also includes estimated
spending on some goods and services that do not have market
prices, such as employer-funded medical care and
insurance programs. In contrast, the CPI only measures
out-of-pocket spending by urban consumers. In addition, the
CPI is based on a basket of goods and services that adjusts
slowly over time, while the PCE deflator automatically
adjusts to account for substitution between goods when prices or
preferences change. As a result of these differences,
the rate of inflation as measured by the PCE tends to be a bit
lower than the rate of inflation as measured by the CPI.
For more information, see the JFO Issue Brief on different
measures of inflation available at:
http://www.leg.state.vt.us/jfo/issue_briefs_and_memos/Inflation_Measures_Issue_Brief.pdf.
7 Data on the distribution of wages in Vermont were first collected
by Vermont DOL in 2004. For more information
regarding the growth of the Vermont minimum wage in relation to
other economic measures see Appendix 9:
“Comparing the Vermont Minimum Wage to Other Measures,
1959–2016” (September 6, 2017).
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
1938
1941
1944
1947
1950
1953
1956
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
2016
Figure 1. Vermont's Minimum Wage, Nominal Dollars and
Inflation-Adjusted using the CPI, 1938-2017
1968
$11.36 2017
$10.00
1938 $0.25
Inflation-adjusted
Nominal dollars
Prepared by the Joint Fiscal Office.
http://www.leg.state.vt.us/jfo/issue_briefs_and_memos/Inflation_Measures_Issue_Brief.pdf
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B. Current Wage Conditions in Vermont
Distribution of Wages and Income:
Under Vermont’s existing minimum wage law, it is estimated that
about 25,500 jobs, or 8.5 percent of Vermont jobs, will be at the
minimum wage of $10.50 in 2018.8 The types of businesses with large
shares of workers that would be affected by an increase in the
minimum
wage include: gasoline stations; general merchandise stores;
food and beverage stores; warehousing and storage; clothing and
clothing accessories stores; health and personal care
stores; food services and drinking places; apparel
manufacturing; miscellaneous store retailers; nonprofits and social
services; child care; furniture and wood product manufacturing;
textile and apparel manufacturing; and large food product
manufacturing.9
In Vermont, roughly 90 percent of employers have 20 or fewer
employees.10 Those small
employers are responsible for one-third of private jobs in the
State and pay 30 percent of private sector wages.
Over the last four decades, wages for low- and middle-wage
workers have not grown as rapidly as wages for high-wage workers.
The Economic Policy Institute (EPI) found that since 1979,
hourly
wages adjusted for inflation using the CPI increased 0.9 percent
at the 10th percentile and 9.2 percent at the 50th percentile, but
they increased 49.6 percent at the 95th percentile (see Figure
1).
8 The number of people with minimum wage jobs would be smaller
than the number of minimum wage jobs because
some jobs are part-time and some workers have more than one job.
9 See Appendix 5: Kavet, Rockler & Associates, LLC, “Economic
Analysis of Three Minimum Wage Variants, as
Requested by the Legislative Minimum Wage Study Committee”
(October 2, 2017) (hereinafter Kavet, Rockler &
Associates, LLC, Oct 2, 2017 memorandum), at 15-18. 10
See Appendix 3: Vermont Department of Labor, Division of
Economic and Labor Market Information, “Size of
Private Businesses in Vermont.”
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VT LEG #328104 v.2
Figure 2. Growth in Hourly Wages for all Workers, Adjusted by
the CPI, 1979-2016
EPI also found that inflation-adjusted hourly wages in Vermont
have grown a bit faster than national wages from 1979 to 2016, but
growth in wages at the low end and in the middle still lags
that at the top end. In Vermont, real hourly wages at the 10th
percentile increased 10.8 percent, those at the 50th percentile
increased 26.8 percent, and those at the 90th percentile increase
41.3 percent.
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Figure 3. Growth in Vermont Hourly Wages Adjusted for Inflation
by the CPI, 1979-2016
Data from the Occupational Employment Statistics Survey show the
distribution of earnings in
Vermont in recent years. The minimum wage in 2016 was $9.60.
Hourly wages at the 10th percentile, meaning that 10 percent of
workers earn less than the given wage, was $10.45 in 2016 (see
Figure 3).11 Hourly wages at the median, or 50th percentile, were
$18.23 in 2016; and at the
90th percentile, hourly wages were $38.85.
Growth in hourly wages from 2004 to 2016 was larger at the top
of the wage distribution than at the bottom. Nominal wages at the
10th percentile increased 2.4 percent, those at the 50th percentile
increased 2.6 percent, and hourly wages at the 90th percentile
increased 2.9 percent.
Over the same period, Vermont’s minimum wage rose 3.0
percent.
11
See Appendix 9: “Comparing the Vermont Minimum Wage to Other
Measures, 1959-2016”, at slide 8. Source:
Vermont Department of Labor, Division of Economic and Labor
Market Information, “Vermont Wage Distribution
2004-2016, All Occupations”, available at
http://www.vtlmi.info/oessummary.htm.
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–
12
Beyond analysis of hourly wages, analysts also look at income
disparity over time, comparing
incomes at the top of the distribution to incomes at the bottom.
Income includes not only earned income but also income from assets
such as stocks or bonds or rental properties. Growing disparity in
incomes in the United States, sometimes called income inequality,
is a well-known
problem. Beginning in the 1970s, economic growth slowed and the
income gap widened. Income growth for households in the middle and
lower parts of the distribution slowed sharply,
while incomes at the top continued to grow strongly. One way to
measure income disparity among U.S. households is to compare the
ratio of the top five percent of average U.S. household income to
the lowest 20 percent. That ratio has increased from about 17.6 in
1967 to about 29 in
2016, or roughly $375,000.00 compared to $12,900.00.13 Part of
that increase comes from income derived from wealth accumulation,
including assets in the stock market, among people
with higher incomes. Although the trend paused during the Great
Recession because of the larger wealth losses for those at the top
of the distribution as stock market prices fell, it has since
resumed partly because of slow labor market recovery and sluggish
wage growth. Reasons
behind the growing income disparity include limited job
opportunities for people without a college degree; disparities in
educational attainment, especially for postsecondary education;
12
Includes the equivalent hourly wages of salaried workers. 13
See Appendix 5: Kavet, Rockler & Associates, LLC, October 2,
2017 memorandum, at 7.
$-
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
$40.00
$45.00
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
2016
Ho
url
y W
age
Figure 4. Vermont Wage Distribution and the VT Minimum Wage,
nominal dollars, 2004-2016
90th percentile
75th percentile
50th percentile
VT minimum wage
10th percentile
Source: Occupational Employment Statistics Survey. Data include
salaried workers as well as workers paid by the hour. Prepared by
the Joint Fiscal Office.
25th percentile
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VT LEG #328104 v.2
growth in globalized trade; exposure to foreign competition in
manufacturing; growth in the financial section and particularly
financial sector compensation; declining unionization; and
prolonged periods of high unemployment (see Figure 5).
Figure 5. Growing Income Disparity
Basic Needs Budget and Livable Wage:
A Basic Needs Budget is a market-based analysis that accounts
for estimated monthly living expenses in Vermont. The basic needs
budget includes the costs for essential items such as food,
housing, transportation, child care, clothing and household
expenses, telecommunications charges, health and dental care,
renter’s insurance, life insurance, and savings. The budget
differs
based on family size and whether the family lives in an urban or
rural part of Vermont. The Vermont Livable Wage is defined in
statute as the hourly wage required for a full-time worker to pay
for one-half of the basic needs budget for a two-person household,
with no children and with
employer-sponsored health insurance, averaged for both urban and
rural areas.14 The 2016 Vermont Livable Wage was $13.03 per hour
when the Vermont minimum wage was $9.60.15
14
2 V.S.A. § 505 defines a livable wage as “the hourly wage
required for a full-time worker to pay for one-half of the
basic needs budget for a two-person household with no children
and employer-assisted health insurance averaged for
both urban and rural areas” and requires JFO to calculate
biennially the Vermont Livable Wage and “basic needs
budgets of various representative household configurations.”
15
Vermont Legislative Joint Fiscal Office, “Basic Needs Budgets
and the Livable Wage” (February 2017), available
at
http://www.leg.state.vt.us/jfo/reports/2017%20BNB%20Report%20Revision_Feb_1.pdf.
http://www.leg.state.vt.us/jfo/reports/2017%20BNB%20Report%20Revision_Feb_1.pdf
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Vermont’s Livable Wage was first estimated in 1998. Between 1998
and 2016, the Vermont Livable Wage in nominal terms increased by
2.6 percent per year. Over that same period, the
Vermont minimum wage increased 3.4 percent per year.16
The Basic Needs Budget also shows wages required to pay for
essential items for six other family configurations. For example,
the estimated wage for a family of four with two wage earners is
$21.97 in urban areas and $20.35 in rural areas. For a single
person in shared housing, it is
$14.46 in urban areas and $12.98 in rural areas (see Table
1).
Table 1. Basic Needs Budget Wages, from the Vermont Legislative
Joint Fiscal Office,
“Basic Needs Budgets and the Livable Wage,” February 2017.
Characteristics of Minimum Wage Workers
Based on American Community Survey data developed for the JFO by
Deb Brighton and reported
in the April 2017 memorandum from Kavet, Rockler &
Associates, LLC, 42 percent of all minimum wage workers are the
head of a family (a couple or single parent family). Forty percent
of these head-of-family minimum wage workers earn at least one-half
of their family’s income.
Fifty-nine percent of all minimum wage workers are over age 30.
While 48 percent of all female minimum wage workers are older than
40, only 32 percent of all male workers are older than 40.
Conversely, 49 percent of all male minimum wage workers are
under the age of 30, while only 36 percent of all female minimum
wage workers are younger than 30.
In comparison to the rest of New England, Vermont has the
largest share of workers earning less than $15.00 per hour with a
bachelor’s degree or higher.17 Similarly, Vermont has the
largest
16
See Appendix 9: “Comparing the Vermont Minimum Wage to Other
Measures, 1959–2016” (September 6, 2017). 17
See Appendix 8: Cooper, David, “Understanding the Needs for
Higher Wage Standards,” Economic Policy
Institute, at 17-19 (citing Chaddha, Anmol, “A $15 Minimum Wage
in New England: Who would be affected?”
Federal Reserve Bank of Boston (2016)), available at:
https://www.bostonfed.org/-
https://www.bostonfed.org/-/media/Documents/Community%20Development%20Issue%20Briefs/cdbrief42016.pdf
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share of workers earning less than $15.00 per hour who are
working full time.18 Finally, in comparison to workers in the rest
of New England, Vermont workers earning less than $15.00 per
hour contribute the largest portion of their family’s income on
average, approximate ly 63 percent.19
C. The Minimum Wage in Other States
Currently, Vermont has the third-highest minimum wage in New
England, behind Massachusetts ($11.00) and Connecticut ($10.10).
Among the remaining states in New England, Rhode Island’s
minimum wage is $9.60, Maine’s is $9.00, and New Hampshire’s is
equal to the federal minimum wage of $7.25.20
Outside New England, Vermont is currently tied with Arizona for
the sixth highest minimum wage in the country.21 However, the
minimum wage in several states is scheduled to surpass
Vermont’s minimum wage in the next few years and other states
are considering increases that would also surpass Vermont’s minimum
wage. More specifically, Arizona, Colorado, and Maine’s minimum
wages are in the process of increasing to $12.00 by January 1, 2020
and will
annually increase for inflation after that.22 In addition,
Massachusetts has been considering several proposals to increase
its minimum wage to $15.00 by 2022, including a possible
referendum that could be on the ballot for the next election.23
In New York, the minimum wage currently varies depending on region
and the size of the
employer.24 Beginning on January 1, 2019, New York’s law
provides the Division of Budget with the authority annually to
“determine whether there should be a temporary suspension or
delay in any scheduled increases” based on the economic
conditions in the state.25
/media/Documents/Community%20Development%20Issue%20Briefs/cdbrief42016.pdf.
The Boston Fed research
relies on one year of data from the American Community Survey.
Because the size of the sample each year in
Vermont is small, one-year estimates have wide confidence bands,
and researchers generally use a five-year average. 18
Id. 19
Id. 20
See Appendix 10: “Minimum Wage Increases in Other States.”
21
Vermont’s minimum wage is less than the minimum wages for
Washington, D.C., Massachusetts, Washington
State, New York City, California’s employers with 26 or more
employees, parts of Oregon, and Connecticut. For
more information see Appendix 10: “Minimum Wage Increases in
Other States.” 22
Rhode Island will also be increasing its minimum wage over the
next few years to $10.50 by 2019. However,
Vermont’s minimum wage will presumably remain ahead of Rhode
Island’s because under existing law it will reach
$10.50 in 2018 and will increase for inflation in 2019. 23
See Appendix 11: “Massachusetts Ballot Initiative: Initiative
Petition for a Law Raising the Minimum Wage.” 24
New York’s minimum wage is $11.00 for employers in New York City
with 11 or more employees, $10.50 for
employers in New York City with 10 or fewer employees, $10.00 in
Nassau, Suffolk, and Westchester counties, and
$9.70 for upstate New York. Those wages will increase annually
until they reach $15.00 on December 31, 2018 for
employers in New York City with 11 or more employees, 2019 for
employers in New York City with 10 or fewer
employees, and 2021 in Nassau, Suffolk, and Westchester
counties. In upstate New York, the minimum wage will
reach $12.50 on December 31, 2020, and after that it will
increase annually by a percentage determined by the
Director of the Budget in consultation with the Commissioner of
Labor until it reaches $15.00. See also NY Labor
Law § 652(1)(c); and Appendix 12: “Summary of New York State
Wage Determination Procedures.” 25
NY Labor Law § 652(6); see also Appendix 12: “Summary of New
York State Wage Determination Procedures.”
https://www.bostonfed.org/-/media/Documents/Community%20Development%20Issue%20Briefs/cdbrief42016.pdf
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Several other states have recently enacted laws that will
increase their minimum wages to between $12.00 and $15.00 in the
next several years. California’s minimum wage will reach
$15.00 on January 1, 2022 for employers with 26 or more
employees and on January 1, 2023 for employers with 25 or fewer
employees and will annually increase by the lesser of 3.5 percent
or
the percentage increase in the CPI after 2023.26 Washington,
D.C.’s minimum wage will reach $15.00 on July 1, 2020, and
beginning on July 1, 2021 will annually increase by a percentage
equal to the percentage increase in the CPI.27 Oregon’s minimum
wage will reach $13.50 on
July 1, 2022 and beginning on July 1, 2023 will annually
increase by an amount equal to the percentage increase in the
CPI.28 Washington State’s minimum wage will reach $13.50 on
January 1, 2020 and beginning on January 1, 2021 will annually
increase by an amount equal to the percentage increase in the
CPI.29 Arizona’s, Colorado’s, and Maine’s minimum wages will reach
$12.00 on January 1, 2020 and beginning on January 1, 2021 will
annually increase by an
amount equal to the percentage increase in the CPI.30
D. Studies of Effects of Raising the Minimum Wage In March 2014,
Kavet, Rockler & Associates, LLC provided an analysis of
increases in the
Vermont minimum wage to $10.00 and $12.50 by January 1, 2015.
That report found that increasing the minimum wage to $10.00 would
likely “have negligible, if any, negative aggregate
economic consequences and could be an important component in
advancing some of the lowest income workers towards a livable
income.”31 In contrast, the report found that increasing the
minimum wage to $12.50 “has serious drawbacks that limit its
efficacy in achieving the overall
objective of improving the well-being of low-wage, working
Vermonters and their families.”32 In particular the report found
that:
1. increases in earned income among low-wage workers could
result in significant decreases
in public benefits that would negate income gains from wage
increases and eliminate
incentive to work for many low-wage workers; 2. substitution of
earned income for federal aid could reduce federal transfer
payments,
generating substantial negative economic impacts; 3. high
marginal tax rates below livable income levels in combination with
reductions in
public benefits could reduce work incentives and delay the
achievement of livable income
for workers; and
26
Cal. Labor Code § 1182.12(c)(1). 27
DC ST § 32-1003(a)(6)(A). 28
O.R.S. § 653.025. Oregon’s law also provides for a higher
minimum wage for employers located in the Portland
metro area and a lower minimum wage for employers located in
nonurban counties. Beginning o n July 1, 2017, the
wage in the Portland metro area was increased to $1.00 above the
standard minimum wage, and beginning on July 1,
2018, it will be $1.25 above the standard minimum wage. The wage
in nonurban counties will increase more slowly
than the standard minimum wage, and beginning on July 1, 2022,
it will be $1.00 below the standard minimum wage. 29
R.C.W.A. § 49.46.020. 30
A.R.S. § 23-363; CO Const. Art. XVIII, § 15; and 26 M.R.S.A. §
664(1). 31
See Appendix 6: Kavet, Rockler & Associates, LLC,
“Memorandum Regarding Preliminary Analysis of $10.00
and $12.50 Vermont Minimum Wage” (March 13, 2014) (Kavet,
Rockler & Associates, LLC, March 13, 2014
Memorandum), at 14. 32
Id.
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4. increasing the minimum wage to a level approaching a livable
wage would result in reduced hours and jobs for low-wage
workers.33
In a February 8, 2017 memorandum to the General Assembly, Kavet,
Rockler & Associates, LLC
noted that the impact of increasing the minimum wage to $15.00
by 2022 (roughly $12.70 in 2015 dollars) would be similar to
increasing it to $12.50 in 2015.34
More recently, a memorandum from Kavet, Rockler &
Associates, LLC dated October 2, 2017 looked at the three minimum
wage paths being considered by the Committee:35
1. $12.50 per hour, effective in 2021 2. $13.25 per hour,
effective in 2022
3. $15.00 per hour, effective in 2022
A higher minimum wage could cause a variety of effects on
employment and employees, businesses, and consumers. With respect
to employment, a higher minimum wage could result in job losses,
reduced employee hours, reduced employee benefits and training, or
slower wage
growth for employees above the minimum wage, or a combination of
these effects. For businesses, increased labor costs from changes
in the minimum wage could result in lower profit
margins, which might lead some businesses to choose to relocate
to another state or to invest in automation in an effort to reduce
labor costs. On the other hand, higher wages could also result in
reduced employee turnover, increased productivity, or increased
disposable income, or a
combination of these effects, leading to increased demand for
goods and services as incomes rise. With respect to consumers,
increased labor costs might lead to higher prices as employers
compensate for increased labor costs.36 The findings from the
October 2 memorandum are summarized in Table 2. Disemployment
effects refer to the net number of jobs lost relative to the
baseline economy, where the number of jobs includes both full-time
and part-time jobs. The number of people who lose jobs would be
smaller than the number of minimum wage jobs lost because some
jobs are part time and some workers have more than one job.
Table 2. Comparisons of Selected Measures for Proposed Minimum
Wage Changes
$12.50 by 2021 $13.25 by 2022 $15.00 by 2022
Effects in the Year of Full Implementation, 2021 or 2022
Percent Change from 2018 Minimum Wage, Constant $
10% 14% 29%
33
Id. at 14-17. 34
See Appendix 7: Kavet, Rockler & Associates, LLC,
“Memorandum Regarding Proposed Five Year Minimum
Wage Increase to $15.00/Hour in 2022” (February 8, 2017) (Kavet,
Rockler & Associates, LLC, February 8, 2017
Memorandum), at 1. 35
See Appendix 5: Kavet, Rockler & Associates, LLC, October 2,
2017 memorandum, at 1. 36
Id. at 10-11.
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Share of Jobs below Proposed Minimum Wage
15% 17% 25%
Approximate Number of Jobs
below Proposed Minimum Wage
43,900 51,100 76,500
Initial Wage Bill Change as a Share of Total Wages and
Salaries
0.5% 0.8% 2.1%
Aggregate Initial Income Gains of Low-Wage Workers
(2015 $)
$55 million $88 million $240 million
Effects in 202237
Net fiscal gain to State from
increased tax revenue and decreased benefit payments (2015
$)
$7 million ($2.5 tax revenue,
$4.3 program savings)
$8 million ($3.9 tax revenue,
$4.2 program savings)
$23 million ($10 tax revenue,
$13.3 program savings)
Net reduction in federal funds
to State economy from decreased federal benefits and
increased federal taxes.38 (2015 $)
$17 million $27 million $69 million
Long-Term Effects per Year, Averaged over 2028–2040
Net Annual Long-Term Disemployment (# Jobs)
903 1,237 2,830
Disemployment as % of Total Jobs
0.2% 0.3% 0.6%
Disemployment as Share of
Minimum Wage Jobs
2.1% 2.4% 3.7%
Effect on Level of Vermont Gross Domestic Product
-0.1% -0.2% -0.4%
Disemployment effects or net job loss following an increase in
the minimum wage, particularly among low-wage workers, is often a
focus of policy analysis. According to the REMI model
results, the net number of jobs lost per year in Vermont in the
long term relative to the baseline under the $15.00 in 2022 path is
projected to be 2,830 per year on average over the period from 2028
to 2040 (see Figure 6). Net job losses in the near term would be
smaller.
37
Results for the $12.50 path are not strictly comparable to
results for the other two paths because full
implementation of $12.50 per hour would occur in 2021, one year
earlier than full implementation for the other two
paths. 38
Payments into federal benefit programs such as Medicaid, SNAP,
and SCHIP would be reduced as workers’
incomes rose and they transitioned off benefits. In addition,
the amount of aggregate federal EITC dollars received
by Vermont taxpayers would be reduced as incomes increased.
Finally, Vermont workers and employers would pay
additional amounts of federal income and payroll taxes as
incomes increased.
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With respect to the disemployment effects, several things are
important to note. The number of Vermonters impacted will likely be
less than the net number of jobs lost shown above because
some Vermonters work multiple minimum wage jobs. Some of the net
jobs lost shown in Table 2 are not full time, meaning that the net
number of FTE jobs impacted would be less. Finally, the
net long-term number of job reductions is for a period of time
more than 10 years in the future; smaller net job reductions would
occur in the near-term during the proposed minimum wage
increases.
The Committee urges the General Assembly to seek updated model
results for all effects shown
above to inform its ultimate decision.
A number of published economic studies have evaluated the
effects of raising the minimum wage in many different settings and
time periods. Traditional national- level studies use
cross-state
variation in minimum wages over time to estimate effects.39
Traditional studies generally find
39
See, e.g., Neumark, David and William Wascher, “Employment
Effect of Minimum and Subminimum Wages:
Panel Data on State Minimum Wage Laws”, Industrial and Labor
Relations Review, 1992, 46(1), at 55-81; and
Neumark, David and William Wascher, “Minimum Wages and
Employment”, Foundations and Trends in
Microeconomics, 2007, 3(1-2), at 1-182.
603 676
1,274
903
1,237
2,830
$12.50 in 2021 $13.25 in 2022 $15.00 in 2022
Figure 6. Net Annual Reduction in the Number of Jobs in
Vermont
Relative to the Baseline: 2022 and the Average over
2028-2040
2022 2028-2040
Source: Kavet, Rockler & Associates, LLC memo of October 2,
2017, corrected on November 6, 2017; Table 3, "Net Annual Long-Term
Disemployment Impact;" Based on REMI model runs, annual employment
change relative to baseline, BEA/REMI basis, 2022 and the annual
average for the period 2028-2040. Net job reductions in any single
year are rough estimates only. Effects in 2022 for
the $12.50 path reflect an extra year of full implementation of
the new minimum wage. Notes: BEA/REMI basis used in the REMI model
counts the number of jobs, full-time plus part-time, by place of
work, including agricultural workers. Full-time and part-time jobs
are counted at equal weight. Employees, sole proporietors, and
active partners are included, but unpaid family workers and
volunteers are not included. The long-term job losses are larger
than those in 2022 because it takes time for employers to adjust to
the higher minimum wages.
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VT LEG #328104 v.2
greater job loss than case studies, which typically compare
adjoining local areas with different minimum wages around the time
of a policy change.40 Case studies have generally found small
or
no disemployment effects. For example, a 2010 study of the
impact of differences in minimum wage policies in almost 300
contiguous county pairs along state borders over a 16-year
period
found no disemployment effects from a higher minimum wage.41 Two
new studies were released in late June to analyze the effects of
raising the minimum wage to
$13.00 in Seattle; both focus on data from January through
September of 2016.42 That time period represents the second stage
of a multi-stage increase in the minimum wage.43
Several issues should be considered in assessing the results of
the two studies. Seattle, the only jurisdiction where a minimum
wage as high as $13.00 per hour has been studied, may represent
a
unique, fast-growth economy. Neither study had been
peer-reviewed as of the end of November 2017, but the UC Berkeley
study follows other peer-reviewed, published papers by the same
authors. With respect to the proposals before the Vermont
General Assembly, the minimum wage increase in Seattle occurred
relatively quickly. For employers with more than 500 employees, the
wage increase occurred over a three- to four-year period, going
from $9.47 on January 1, 2015 to
$15.00 on January 1, of 2017 or 2018, depending on whether the
employer makes payments toward its employees’ medical benefits. In
contrast, the minimum wage proposals for Vermont
start from a higher existing minimum wage and increase the
minimum wage over three to nine years; going from $10.00 to $15.00
by January 1 of 2020, 2022, or 2026.44 The differences between
Seattle’s ordinance and the Vermont proposals in combination with
the conflicting
results of the studies suggest proceeding cautiously before
drawing firm conclusions on the basis of the experience in Seattle,
as does the general lack of studies of minimum wages as high as
$13.00 per hour.45 The Minimum Wage Study Committee suggests
that the General Assembly consider the pros,
cons, and costs of collecting data on quarterly hours worked by
individuals to permit analysis of the effect of any minimum wage
increases on jobs, wages, and hours worked for low-wage
workers.46
40
Examples of such case studies include comparisons of New Jersey
and Pennsylvania (Card & Krueger, 1994, 2000)
and San Francisco and neighboring areas (Dube, Naidu, &
Reich, 2007). 41
See, Dube, Arindrajit, T. William Lester, and Michael Reich,
“Minimum Wage Effects Across State Borders:
Estimates Using Contiguous Counties” (2010). 42
See Appendix 13: Manchester, Joyce, “Preliminary Summary Review:
Two Studies on the Effects of Raising the
Minimum Wage to $13 per Hour in Seattle”, Issue Brief, Vermont
Legislative Joint Fiscal Office (July 13, 2017).
The two new studies reached different conclusions about the
effect of the increase in the minimum wage in Seattle.
As in other case studies, the UC Berkeley study found no adverse
effect on employment and positive effects on
wages. In contrast, the University of Washington study found
fewer hours worked by low-income workers large
enough to cause reduced earnings of low-income workers of
$125.00 per month on average. 43
For Seattle employers with more than 500 employees, the minimum
wage reached $15.00 on January 1, 2017 or
will do so on January 1, 2018, depending on whether the employer
makes payments toward its employees’ medical
benefits. Seattle’s Minimum Wage Ordinance also provides that
the minimum wage for employers with 500 or fewer
employees will increase to $15.00 on January 1, 2019 or on
January 1, 2021 if the employees receive tips or the
employer makes payments toward the employees’ medical benefits,
or both. See Table 3, on page 31. 44
See Section II.F of the Committee’s Report on page 19. 45
Manchester, Joyce. Id. 46
Data on quarterly hours worked by individuals could be collected
as part of the Quarterly Census of Employment
and Wages. That Census currently collects data on quarterly wage
data in Vermont.
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E. Programs that Help Low-Income Households
Most public benefits that are designed to be a “safety net”
decline as households move out of
poverty and their need for financial assistance decreases. The
benefit levels are generally at the maximum amount when household
incomes are less than 100 percent of the Federal Poverty Level
(FPL) and decline at higher incomes—generally between 100 percent
and 200 percent of
FPL.
A person working full time at Vermont’s minimum wage in 2017
would have an income of $20,800.00. For a household of one, this
would be 172 percent of FPL; for a household of two with one
earner, it would be 128 percent of FPL; for a household of three
with one earner, it
would be 102 percent of FPL. If the minimum wage were increased,
each of these households could see a cumulative loss in benefits
(see Figure 7). Major programs that benefit low-income
households are described below. Figure 7. Analysis prepared by
Deb Brighton for the Joint Fiscal Office.
1. The Earned Income Tax Credit
The Earned Income Tax Credit (EITC) differs from other programs
that benefit low-income households in two ways: it functions as a
work incentive because the value of the credit increases as wages
increase (at low wage levels), and the value of the credit does not
reduce any other
benefits the recipient would otherwise receive. The amount of
the federal EITC depends on the number of children and the earned
income of the
family. For each family type, the credit increases as wages
increase, up to a maximum amount, and decreases at higher wage
levels, as shown in the figure below from the Tax Policy
Center.
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VT LEG #328104 v.2
Figure 8.
Vermont offers an Earned Income Tax Credit that is calculated as
32 percent of the federal credit.
Since 2009, the number of Vermont filers receiving the federal
and State EITCs has been between 44,000 and 45,000 annually. In
2015, the federal credit totaled $85 million and the Vermont credit
totaled $27 million. The average combined credit per filer was
$3,157.00.
For a family with two children, the amount of the combined
federal and Vermont credits would
equal 52.8 cents for every dollar earned as the family’s
earnings increase—up to earnings of $14,040.00. The credit would
begin to decline when the family’s earnings reach $18,340.00 (or
$23,930.00 for married couples filing a joint return). At that
point, the combined federal and
Vermont credits would decrease by 28.8 cents for each additional
dollar earned.
Both the federal and Vermont EITCs are refundable credits, so
people who do not pay any income tax get the full credit if they
file a tax return. In 2010, over one-half of the Vermont filers who
received the credits paid no Vermont income tax, so the credit was
fully paid out. Another
29 percent paid Vermont income tax, but the Vermont EITC was
greater than the amount of tax they owed, so they received a
refund.
The Committee considered a new tax credit for working parents
with children under the age of 14, which would be paid out on a
monthly basis over the course of the year instead of in a
single
lump sum as with the EITC. Testimony from the Department of
Taxes indicated that the monthly payment of the credit would result
in high administrative costs for the State and that the IRS
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would likely treat the amounts paid out pursuant to such a
credit as income, which could raise recipients’ federal tax
liability or diminish the amount of recipients’ federal EITC. For
these
reasons, the Committee decided not to recommend the creation of
such a credit.
2. The Child Care Financial Assistance Program Vermont’s Child
Care Financial Assistance Program (CCFAP) subsidizes the cost of
child care
for eligible families in a manner that encourages employment.
Subsidy payments are made directly from the State to a family’s
child care provider. The subsidy is administered on a sliding
fee scale basis, the formula for which is determined by the
Commissioner for Children and Families by rule and accounts for
both family size and income level. According to statute, “[t]he
lower limit of the fee scale shall include families whose gross
income is up to and including 100
percent of the federal poverty guidelines…[t]he upper income
limit of the fee scale shall be neither less than 200 percent of
the federal poverty guidelines nor more than 100 percent of the
State median income, adjusted for the size of the family.”47 It
is estimated that there are roughly 7,000 families (about 10,800
children) with the following
characteristics:
1. at least one child younger than 13 years of age who needs
child care because all parents work;
2. a family income between 100% and 220% FPL; and
3. family income that would potentially increase if the minimum
wage were to increase.
However, not all of these families currently receive assistance
through the State program. Currently there are about 3,000 children
from families in this income range receiving CCFAP—roughly 2,000
families—who would lose CCFAP if their incomes increased.
Presumably not all
of these families would be affected by an increase in the
minimum wage.
Currently, families that are eligible to receive a 100 percent
subsidy through CCFAP receive an amount based on the rate charged
by 75 percent of all child care providers in 2008, as captured in a
market rate survey of regulated child care providers conducted
biennially by the Department for
Children and Families. CCFAP is particularly relevant in the
context of Vermont’s policy discussion on minimum wage, due to the
existence of a “benefit cliff” inherent in the program’s
structure. At certain points along the subsidy’s sliding fee
scale, an increase in wages would decrease the family’s child care
benefit more than the amount gained by the wage increase, resulting
in a net financial loss for the family.
3. Other federal and State programs
3SquaresVT
The most common benefit is 3SquaresVT, which is a federally
funded program that is also known as the Supplemental Nutrition
Assistance Program (SNAP). In general, for each extra dollar a
47
33 V.S.A. chapter 35, subchapter 2.
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VT LEG #328104 v.2
recipient earns, the 3SquaresVT allotment decreases by 24 cents.
In 2017 there were 77,366 3SquaresVT recipients.48
Section 8 Housing Choice Vouchers
Section 8 Housing Choice Vouchers are initially limited to
households with very low income. When receiving rental assistance,
the participants typically pays about 30 percent of their
income
toward rent and utilities. Families can continue in the program
as their incomes increase, but their portion of the rent also
increases. In general, for each additional dollar a family earns,
it will pay
an additional 30 cents in rent as long as it is at or below the
payment standard.49 Only around 6,000 Section 8 Housing Choice
Vouchers are available in Vermont. The Vermont
State Housing Authority provides 3,478 of those roughly 6,000
vouchers, with the remainder being provided through other local
housing authorities.50 Of the 3,478 households that VSHA
assists, 3,369 have income from other public benefits programs
or wages, or both. Of those households, 218 only earn income from
wages, with an average annual income of roughly $21,100.00.
This is a federal program. However, if a family’s income rises
to a point where it is paying
100 percent of the rent, it will be considered over income for
the program. After six months of being over income, the family’s
subsidy will be cancelled. At that point, depending on program
funding, a new voucher may be issued to another eligible family at
the top of the waiting list or
the voucher may be shelved until funding becomes available.
LIHEAP
The Vermont Low Income Heating and Energy Assistance Program
(LIHEAP) helps pay fuel
bills for qualified families. The benefit amount decreases
slowly as family income increases from 75 percent to 154 percent of
FPL and then it drops substantially between 155 percent and 185
percent FPL. The amount that a family would lose for each
additional dollar earned varies depending on the type of fuel, the
family size, and the family’s income. In State fiscal year 2017,
roughly 21,200 families received LIHEAP assistance, and the average
amount was $709.00.
LIHEAP is a federal block grant program with additional State
funding.
Medicaid/VT Health Connect
Individuals and families with incomes up to 138 percent of FPL
can receive Medicaid coverage,
which is currently 54.46 percent federally funded and 45.54
percent State-funded. As income increases above that amount, a
family must move off Medicaid. If they purchase health
insurance
through VT Health Connect, they are eligible for premium
assistance and for cost-sharing
48
AHS ESD State FY2017. 49
The payment standard is the maximum gross rent of a unit, which
equals the contract rent plus the utilities paid by
the participant. Payment standards are set by each individual
public housing authority and are between 90 and 110
percent of the HUD Fair Market Rent. When a unit’s gross rent is
at or below the payment standard, the participant
will typically pay 30 percent of his or her adjusted monthly
income toward rent and utilities. 50
Of the 3,478 households that the VSHA assists, 2,062 are either
elderly or disab led.
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subsidies. Both types of assistance decline, and out-of-pocket
costs increase, as family incomes moves from 138 percent to 400
percent of FPL. Although the federal share of the assistance
declines as family income increases, the State share increases
between 138 percent and 300 percent FPL. The amount that a family’s
out-of-pocket costs increase with each additional dollar
of income varies, depending on the family size and use of
medical services. SSDI and SSI
Two programs available to working-age Vermonters with severe
disabilities are the Social
Security Disability Insurance (SSDI) program and the
Supplemental Security Income (SSI) program. Earnings limits apply
to disability beneficiaries under each program.51 Under the SSDI
program, monthly benefits are stopped if beneficiaries earn too
much per month over an extended
period of time. Under the SSI program, if the beneficiary has no
income other than SSI benefits and earnings, any earnings above
$85.00 per month lead to a reduction in benefits of $1.00 for
every $2.00 of additional earnings. However, relatively few
disability beneficiaries are close to the earnings limit at any
particular point in time and would lose benefits as a result of an
increase in the minimum wage.
Other Tax Provisions
In addition to the Earned Income Tax Credits, there are
beneficiaries of other tax programs that would be affected by an
increase in wages.
For homeowners, the Property Tax Adjustment would decrease as
household income increased.
On average, an additional dollar of income would reduce the
Property Tax Adjustment by three cents. Roughly 120,000 households
receive this adjustment.
Both renters and homeowners with incomes below $47,000.00 are
eligible for the rebate program. This caps the homeowner’s property
tax bill and the renter’s rent payment based on income. As
household income increases, the amount of the credit decreases.
Roughly 32,000 homeowners and 13,000 renters receive this rebate.
In general, participating renters and homeowners with incomes
between $25,000.00 and $47,000.00 would see a rebate reduction of
five cents for each
additional dollar earned.
F. Recent Minimum Wage Bills in Vermont During the 2017 session,
five bills were introduced in the General Assembly that would
increase
the minimum wage beyond the levels currently provided by
statute.52 H.64 would increase the minimum wage to $15.00 by
January 1, 2020. H.93 and S.40 would increase the minimum wage
to $15.00 by January 1, 2022. H.313 would increase the minimum
wage and the tipped minimum wage to $15.00 by 2022. H.302 would
increase the minimum wage to $15.00 by 2026. All five bills are
still awaiting action in the committees to which they have been
assigned.
51
SSI beneficiaries are also subject to asset limits; the Vermont
General Assembly increased the asset limit for SSI
beneficiaries in Vermont during the 2017 legislative session.
52
See Appendix 14: Vermont Minimum Wage Bills Introduced in
2017.
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VT LEG #328104 v.2
III. Statutory Authority and Responsibilities of the
Committee
The General Assembly established the Minimum Wage and Benefits
Cliff Study Committee in 2017 in recognition of the growing income
disparity in the United States and among Vermonters.
Specifically, the Committee is charged with studying or doing
the following: 1) the minimum wage in Vermont and livable wage in
Vermont in relation to
the real cost of living;
2) the economic effects of small to large increases in the
Vermont minimum wage, including in relation to the minimum wage in
neighboring states;
3) how the potential for improving economic prosperity for
Vermonters with low and middle incomes through the Vermont Earned
Income Tax Credit might interact with raising the minimum wage;
4) working in direct collaboration with the Department for
Children and Families and the Joint Fiscal Office, the State’s
public benefit structure
and recommended methods for mitigating or eliminating the
benefit cliffs experienced by working Vermonters receiving public
assistance or earning below the livable wage, or both, to enhance
work incentives;
5) the effects of potential reductions in federal transfer
payments as the minimum wage increases, and impacts of possible
reductions in federal
benefits due to changes in federal law; 6) ways to offset losses
in State and federal benefits through State benefit
programs or State tax policy; and
7) further research to understand better the maximum beneficial
minimum wage level in Vermont.53
The Committee is composed of three senators, not all from the
same political party, who were appointed by the Committee on
Committees and three representatives, not all from the same
political party, who were appointed by the Speaker of the House.
Act 69, § F.1 requires the Committee to submit a written report to
the Senate Committee on Economic Development,
Housing and General Affairs and to the House Committee on
General, Housing and Military Affairs by December 1, 2017.
IV. Summary of Committee Activities
While the General Assembly was adjourned, the Committee convened
five times in 2017 to hear testimony from a diverse array of
stakeholders on a number of issues within its jurisdiction.54 The
Committee took testimony on the following subjects:
The history of the minimum wage in Vermont and at the federal
level, including increases
over time and the average increase adjusted for various measures
of inflation and economic growth.
Recent legislation to increase the minimum wage in other states
and municipalities.
53
See Appendix 1: 2017 Acts and Resolves No. 69, Sec. F.1. 54
See Appendix 2: Witness List.
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VT LEG #328104 v.2
New York State’s minimum wage law, including scheduled increases
in the minimum wage
across various regions and employer sizes, and provisions for
potentially delaying wage increases based on certain economic
factors.
Current and recent minimum wage legislation in Massachusetts and
New Hampshire.
An ongoing $15.00 minimum wage referendum effort in
Massachusetts.
“Off-ramp” provisions in California’s minimum wage law that
would allow California’s
governor to pause temporarily its scheduled minimum wage
increases up to two times, in the event of certain economic or
fiscal conditions signaling a downturn in the state’s economy.
Current legislation in Vermont to increase the minimum wage to
$15.00.
The impact on jobs and the number of workers at minimum wage if
Vermont’s minimum
wage increased to $12.50 by 2021, $13.25 by 2022, or $15.00 by
2022.
The potential effect of increasing Vermont’s minimum wage on
Vermont businesses and
workers and their potential responses to an increase.
The potential effect of increasing Vermont’s minimum wage on
Vermont nonprofits and their
potential responses to an increase.
The federal and Vermont Earned Income Tax Credits.
The potential of creating a tax credit for working parents with
children aged 13 and under to offset diminished public benefits as
a result of increases in the minimum wage.
The Vermont Basic Needs Budget and the Vermont Livable Wage.
Public benefits provided in Vermont, including 3SquaresVT,
LIHEAP, Reach Up cash grants,
the Child Care Financial Assistance Program, public health
insurance programs, federal and State tax credits, the Lifeline
Telephone Service Credit, and Section 8 housing vouchers.
The effect of potential minimum wage increases on affordable
housing.
The relationship between increases in the minimum wage or
earnings and the amount of
public benefits available to an individual or family.
The “benefits cliff” and potential approaches to mitigate or
eliminate it as wages increase.
Studies of potential benefits cliffs and other impacts that were
conducted for Oregon as it was considering legislation to raise its
minimum wage.
The effects of potential minimum wage increases on State
employees’ wages, the State budget, and State contracts.
The effect of potential minimum wage increases on the Vermont
State Employees’ Retirement
System.
The impact of potential minimum wage increases on home health
care workers, including
visiting nurses.
An exploratory response regarding the effects of potential
minimum wage increases on school
district budgets from the Vermont School Boards Association, the
Vermont Superintendents Association, and the Vermont Association of
School Business Officials.
Wage stagnation in Vermont and across the United States.
Income disparity in Vermont and across the United States.
Studies of the minimum wage increase in Seattle.
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V. Issues for Consideration in Crafting a Minimum Wage
Policy
A. TIPPED EMPLOYEES
Federal minimum wage for tipped employees is $2.13. It has
remained at that level since 1991, despite several increases in the
federal minimum wage during the intervening years. Because of this,
a number of states have increased their tipped minimum wage to
levels above the federal
minimum wage. Seven states—Alaska, California, Minnesota,
Montana, Nevada, Oregon, and Washington—have a single minimum wage
that applies to both tipped and nontipped workers.
Another 26 states, including Vermont and the District of
Columbia, provide for a tipped minimum wage that is greater than
the federal minimum wage. The remaining 17 states have a tipped
minimum wage that is equal to the federal tipped minimum wage.
The states that exceed the federal tipped minimum wage do so
through a variety of mechanisms.
For example, in Vermont the tipped minimum wage is equal to
one-half the minimum wage. Similarly, other states have a tipped
minimum wage that is equal to a percentage of the minimum wage,
including New Hampshire (45 percent of the minimum wage) and New
York (two-thirds of
the minimum wage or $7.50, whichever is greater). In other
states, the tipped minimum wage is equal to the minimum wage minus
a fixed amount. The states include Arizona, where the tipped
minimum wage is $3.00 less than the minimum wage, and Colorado,
where the tipped minimum wage is $3.02 less than the minimum wage.
Finally, some states set the tipped minimum wage at a specific
dollar amount. These jurisdictions include Maine, in which the
tipped minimum wage
is $5.00, and Washington, D.C., where the tipped minimum wage is
$3.33. It should be noted that in Maine, the tipped minimum wage is
scheduled to increase by $1.00 per year until it is equal to
the minimum wage, while in Washington, D.C., the tipped minimum
will annually increase until it reaches $5.00 in 2020 and after
that it will annually increase by a percentage equal to the
increase in the CPI.55
Due to time constraints, the Committee took virtually no
testimony on the issue of the tipped
minimum wage. Therefore, the Committee does not have a
recommendation with respect to whether the General Assembly should
amend the statutory language governing Vermont’s tipped minimum
wage.56
B. COST TO STATE
It is anticipated that an increase in the minimum wage would
cause costs to the State to rise from the need to pay some low-wage
State workers, contractors, and other associated workers a
higher
wage and possible ripple effects on the State pension fund. In
fact, however, not many State workers or contractors earn wages
that are at or below the proposed minimum wage levels. The
55
For further information, see the JFO Issue Brief, “The
Relationship between Minimum Wages and Tipped Wages,”
March 30, 2017, available at
http://www.leg.state.vt.us/jfo/issue_briefs_and_memos/Issue_Brief_Minimum_Wages_and_Tipped_Wages.pdf
. 56
A number of scholarly articles have considered the effect of
increasing the tipped minimum wage. See, e.g., Even,
William E., and David A. MacPherson, “The Effect of Tip Credits
on Earnings and Employment in the U.S.
Restaurant Industry” (2013); Allegretto, Sylvia and Carl Nadler,
“Tipped W age Effects on Earnings and Employment
in Full-Service Restaurants” (2015); and Jones, Maggie R.,
“Measuring the Effects of the Tipped Minimum Wage
Using W-2 Data” (2016).
http://www.leg.state.vt.us/jfo/issue_briefs_and_memos/Issue_Brief_Minimum_Wages_and_Tipped_Wages.pdf
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discussion below refers to the increase to $15.00 per hour in
2022 and includes impacts on State employees; State contracts,
including temporary workers; employees of the Designated
Agencies
and Specialized Service Agencies; the University of Vermont;
Vermont State Colleges; and the State employees’ pension fund.
State employees
The yearly cost impact for the State employee workforce would be
about $1 million over the five years from 2018 through 2022. That
estimate includes the impact on pay, State Social Security
and Medicare contributions under the Federal Insurance
Contributions Act (FICA), and where relevant, retirement. Most of
the costs come from temporary workers.
Historically, roughly 40 percent of the cost of the State
workforce has been covered by federal or other funding sources. It
should be noted, however, that changes in federal policy could
reduce
funding available to the State, and some grants and federal
funding streams may not increase if State personnel costs rise as a
result of an increase in the minimum wage.
State contracts, including temporary workers
The $15.00 minimum wage is expected to have a minor financial
impact on existing State contracts. Little effect would accrue to
the Agency of Transportation because most of their projects are
fully or partially federally funded, meaning their wages are
subject to the Davis-
Bacon wage levels and already above $15.00 per hour.
Designated Agencies, Specialized Service Agencies
Pursuant to Sec. E314.2 of Act 85 of 2017, the “Secretary of
Human Services, in consultation
with the Departments of Mental Health and of Disabilities,
Aging, and Independent Living, shall estimate the levels of funding
necessary to sustain the designated and specialized service
agencies’ workforce, including increases in the hourly wages of
workers to $15, and to increase the salaries for clinical employees
and other personnel in a manner that advances the goal of achieving
competitive compensation to regionally equivalent State, health
care, or school-based
positions of equal skills, credentials, and lengths of
employment; enable the designated and specialized service agencies
to meet their statutorily mandated responsibilit ies and
required
outcomes; identify the required outcomes; and establish
recommended levels of increased funding for inclusion in the fiscal
year 2019 budget.” The report required pursuant to that section is
due “on or before December 15, 2017 to the House Committees on
Appropriations and on Health
Care and to the Senate Committees on Appropriations and on
Health and Welfare.” Accordingly, the Committee was unable to
obtain information on this issue prior to the December 1, 2017
deadline for submitting its report. Home Health and Personal
Care
The Committee received a written payroll report from ARIS
Solutions, which processes payments
for a substantial number of long-term-care programs overseen and
partially funded by the State.57
57
See Appendix 4: ARIS Solutions Data on Payroll for Various
Programs.
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The Committee also heard testimony from Vermont’s home health
agencies. Although more details are needed from the home health
agencies, it appears that starting wages for their lowest
paid employees are approximately $1.00 per hour higher than the
current minimum wage and rise to $2.00 per hour higher within a
year. While there would be little pressure on these programs in
the early years under the minimum wage proposals being
considered by the Committee, the out years could prove problematic.
The agencies expressed a strong desire to find a way to increase
their wages for their lowest paid aides.
Public Education
The Committee received a joint written response from the Vermont
School Boards Association, Vermont Superintendents’ Association,
and the Vermont Association of School Business
Officials. Unfortunately, due to legitimate time constraints
they were unable to provide any detailed wage data, other than to
express concern that raising the minimum wage could potentially
raise local school budgets in the future. The Committee did
receive a preliminary assessment from Addison Northwest Supervisory
Union
showing budgetary impacts from a proposal to raise the minimum
wage to $15.00.58 However, absent similar information from a
representative sample of other school districts and supervisory
unions, at this time the Committee is unable to draw a
conclusion as to the statewide impact of an increased minimum wage
on public education. The Committee recommends that the Agency of
Education, together with the Vermont National Education
Association, the Vermont
Superintendents Association, and the Joint Fiscal Office, begin
the process of collecting more hourly wage details from a
representative sample of business managers of school districts
to
ensure that the information will be available to the committees
of jurisdiction before the General Assembly reconvenes in January
2018.
University of Vermont
The net impact of a $15.00 minimum wage in FY22 is estimated to
be $125,000.00 annually in wages and benefits.
Vermont State Colleges
Employee wages and benefits would rise about $100,000.00 through
2022 if the minimum wage increased to $15.00 per hour in 2022.
Pursuant to 21 V.S.A. § 383(2)(I), Vermont’s minimum wage law does
not apply to “students working during all or any part of the school
year or regular
vacation periods.” However, it is important to note that the
term “student” is not defined in Vermont’s law and there is no case
law to date regarding whether the term “student” refers to
secondary school students only, or if it includes college
students as well. If Vermont State College students’ wages were
determined to be affected by an increase in the minimum wage, the
additional cost could be as much as about $1 million through 2022,
or an average of $250,000.00
annually.
58
See Appendix 16: Assessment of Budgetary Impact on Addison
Northwest Supervisory Union from an Increase in
the Minimum Wage to $15.00 in 2018.
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State Employees’ Retirement System
The impact of an increase in the minimum wage on the Vermont’s
State Employees’ Retirement System would be minimal because the
majority of individuals who would be impacted are
temporary employees who are not eligible to participate in
Vermont State Employees’ Retirement System Defined Benefit and
Defined Contribution plans. Accordingly, there would be no
additional retirement costs for this group.
Exempt State employees have the option of participating in
either the Defined Benefit or Defined
Contribution plan. Under the Defined Contribution plan,
contributions are a flat percentage of an employee’s pay; 2.85% for
the employee and 7.0% for the employer. Any increase in pay would
be multiplied by these percentages to determine additional
contributions, but, according to the
Treasurer’s office, the increase appears to be minimal. For
Defined Benefit participants, the increase in pay would marginally
affect the average final compensation on which the
participant’s
pension benefit is calculated. While it is impossible to
quantify an individual’s pension benefit without full service year
data as well as wages, the impact appears minimal.
Classified employees, who would likely not be impacted by a
minimum wage increase until calendar years 2021 and 2022, are
eligible for the Defined Benefit plan. As with exempt
employees, any calculation for increases in a classified
employee’s pension benefits based on the minimum wage increase
would also include the use of the average final compensation and
years of service factors. As with the exempt employees, the
increase would be negligible.
C. CROSS-BORDER ISSUES
The decision regarding whether to increase Vermont’s minimum
wage could create potentially significant differences between
Vermont and its neighbors. A higher minimum wage along one
side of the border could lure workers in search of higher wages
across the border, resulting in increased spending and increased
traffic in local businesses. On the other hand, it could also
increase labor costs, which might result in increased price
disparities along the border. Another potential impact of a
cross-border wage differential is that employers along the side of
the border with a lower minimum wage may increase their wages in
order to compete for labor. It is also
important to note that an analysis of the impact of a
cross-border wage differential must account for other factors that
could influence workers’ or employers’ behavior, including tax
rates,
settlement patterns, differences in per capita income,
availability of transportation, and land use regulations.
It should be noted that the Committee heard testimony regarding
studies of cross-border wage variations that indicated that there
was minimal impact due to cross border variations in the
minimum wage.59 In particular, the testimony cited a 2010 study
that examined differences in minimum wage policies in contiguous
counties located along state borders over a 16-year period and
found no adverse impact on employment from a higher minimum
wage.60
59
See Appendix 8: Cooper, David, “Understanding the Needs for
Higher Wage Standards”, Economic Policy
Institute, at 20-21. 60
See, Dube, Arindrajit, T. William Lester, and Michael Reich,
“Minimum Wage Effects Across State Borders:
Estimates Using Contiguous Counties” (2010).
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Under current law, Vermont’s minimum wage will increase to
$10.50 in 2018 and will be indexed
for inflation thereafter. The minimum wage for upstate New York
along Vermont’s border will increase to $10.40 in 2018 and will
reach $12.50 in 2021, and will thereafter be indexed for
inflation until it reaches $15.00.61 Massachusetts’ minimum wage
is currently $11.00, but several proposals to increase it to $15.00
by 2022 are currently under consideration.62 New Hampshire’s
minimum wage is equal to the federal minimum wage of $7.25, and
recent proposals to increase it
have been unsuccessful.63
Thus, with respect to New York, if Vermont elects not to
increase its minimum wage, the minimum wage in upstate New York
will surpass Vermont’s minimum wage and increase to roughly 12
percent more than the Vermont minimum wage by 2022.64
In Massachusetts, however, if neither Massachusetts nor Vermont
elects to change its current
minimum wage laws, then Vermont’s minimum wage will likely catch
up to and surpass the Massachusetts minimum wage in about 2021.65
On the other hand, if Massachusetts does elect to increase its
minimum wage to $15.00 by 2022 and Vermont does not increase its
minimum wage,
then the Massachusetts minimum wage in 2022 would be
approximately 32 percent higher than the Vermont minimum wage.
By contrast to Massachusetts and New York, New Hampshire’s
minimum wage is already significantly lower than Vermont’s and
there are no indications that New Hampshire is likely to
raise its wage in the foreseeable future. Currently, Vermont’s
minimum wage is 38 percent higher than New Hampshire’s. Assuming
New Hampshire’s minimum wage does not change, if
Vermont’s minimum wage rose to $12.50 by 2021, it would be 72
percent higher than New Hampshire’s; if it rose to $13.25 by 2022,
it would be 83 percent higher. Most significantly, if New
Hampshire’s minimum wage did not change but the Vermont minimum
wage rose to $15.00
by 2022 as proposed in some of the legislation pending before
the General Assembly, it would be more than double New Hampshire’s
minimum wage.66
Any competitive impacts could become more pronounced as
differentials grow between the minimum wage in Vermont and those in
New Hampshire, Massachusetts and New York.67
D. “PAUSE BUTTON”
Both New York and California’s minimum wage laws include
provisions that would permit the scheduled increases in each
state’s minimum wage to be paused temporarily in the event of
an
economic downturn or adverse economic impacts resulting from the
increase in the minimum wage.
61
See Appendix 10: “Minimum Wage Increases in Other States.”
62
See Appendix 11: “Massachusetts Ballot Initiative: Initiative
Petition for a Law Raising the Minimum Wage.” 63
See Appendix 15: Leonard, Damien, “Memorandum Regarding Minimum
Wage Initiatives in New Hampshire and
Massachusetts, and the Fiscal Off-Ramp in California’s Minimum
Wage Law”, at 1-2. 64
See Appendix 10: “Minimum Wage Increases in Other States.”
65
Id. 66
See Appendix 5: Kavet, Rockler & Associates, LLC, October 2,
2017 memorandum, at 5. 67
See Appendix 7: Kavet, Rockler & Associates, LLC, February
8, 2017 memorandum.
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Beginning January 1, 2019 and continuing until the minimum wage
reaches $15.00 in all regions
of the state, New York’s law requires the Division of Budget to
analyze annually the economy in each region and the effect of the
minimum wage increases to determine whether there should be a
temporary suspension or delay in any of the scheduled
increases.68 California’s law permits the Governor to delay the
scheduled increase for one year if the Director of Finance
certifies that either certain economic or certain budgetary
conditions are met.69 The Governor may pause the
scheduled increases pursuant to the budgetary provisions no more
than two times.
However, differences between Vermont and New York and California
weigh against Vermont adopting a similar “pause button” framework.
Vermont’s economic and demographic makeup are significantly
different from states such as California and New York, which both
have significant
metropolitan areas with populations and economies that are
significantly larger than Vermont’s. The Committee felt that, given
Vermont’s size, geography, economy, and demographics,
combined with the limited data available to policy makers, it
would be difficult to create a framework for accurately determining
the degree to which an increase in the minimum wage was the primary
factor causing a negative change in the State’s economy or budget.
Moreover, if the
State were to be faced with a recession that made scheduled wage
increases difficult for the economy to bear, the General Assembly
can always pass legislation altering or delaying any
future wage increases. A statutory requirement of an annual
report to the General Assembly on the effects of a minimum wage
increase might also be considered.
E. INFLATION ADJUSTMENTS
Under Vermont’s current minimum wage law, after the minimum wage
reaches $10.50 in 2018, it will be annually increased “by five
percent or the percentage increase of the Consumer Price
Index . . . whichever is smaller.”70 Including Vermont, 17
states and Washington, D.C. have a minimum wage that will be
annually adjusted for inflation.71 Most states, such as Vermont,
use
the CPI as the measure of inflation.72 However, only a few of
those states—California, Michigan, Minnesota, Nevada, and
Vermont—cap the cost of living increase at a specific percentage
between 2.5 and five percent.
Indexing the minimum wage to inflation can ensure that the real
value of the wage does not
diminish over time. However, if the increase in the minimum wage
is capped at a certain
68
For more information on New York’s Analysis, see Appendix 12:
“Summary of New York State Wage
Determination Procedures.” 69
The economic conditions are met if (1) seasonally adjusted
statewide nonfarm job growth for either the past 3 or 6
months is negative and (2) retail sales tax receipts for the
past 12 months are negative. The budgetary conditions are
met if the state’s General Fund would be in deficit in the
current fiscal year or either of the two following fiscal years
when taking into account the current minimum wage and the next
scheduled increase. For more information see
Appendix 15: Leonard, Damien, “Memorandum regarding Minimum Wage
Initiatives in New Hampshire and
Massachusetts, and the Fiscal Off-Ramp in California’s Minimum
Wage Law.” 70
21 V.S.A. § 384(a). 71
See National Conference of State Legislatures, “2017 Minimum
Wage by State”, available at:
http://www.ncsl.org/research/labor-and-employment/state-minimum-wage-chart.aspx.
72
See Appendix 10: “Minimum Wage Increases in Other States.”
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percentage, there is a chance that the real value of the minimum
wage could decrease somewhat during periods of high inflation. Such
periods, however, have been rare since 1981. Specifically,
between 1981 and 2016, inflation as measured by the CPI has
exceeded five percent in only three years: 1981, 1982, and
1990.
An alternative approach discussed by the Committee was the
possibility of setting a specific minimum annual increase in the
wage rate. In other words, rather than increasing by the lesser
of
the CPI or a specific percentage, the minimum wage would
increase by the greater of the CPI or the specific percentage. That
approach would likely cause the real value of the minimum wage
to
increase over time and specifically during periods of low
inflation when the minimum percentage were greater than the rate of
inflation.
Regarding the proposals in Section VI, the Committee took no
position on future minimum wage increases, indexed for inflation or
otherwise, after the minimum wage reaches $15.00 per hour.
F. REGIONAL VARIATIONS
In both New York State and Oregon, the minimum wage varies
across different regions of the state. In New York, the wages in
the various regions are all increasing to $15.00, but they are
doing so at different rates.73 In Oregon, by contrast, the
regional variations in the minimum wage will remain fixed while the
regional wages are increased based on the percentage increase in
the CPI after 2022.74 Both New York and Oregon have a major
metropolitan area with a strong
economy as well as significant rural areas with weaker
economies. Although Vermont lacks a major metropolitan area, it too
has regional variations across the State in wages and the cost
of
living. Regional variations in the minimum wage can help account
for differences in the economy of
various regions of a state. However, identifying and
distinguishing the various regions can be complicated by issues
such as determining the level of economic variation needed to
justify a
different wage rate, establishing wage rates that will not
disadvantage one region in relation to another, and accounting for
potential impacts on communities located along the border between
two regions. While the General Assembly may wish to consider
amending Vermont’s minimum
wage so that it varies based on regional difference, the
Committee would not recommend doing so at this time.
73
The current minimum wage is highest in New York City, followed
by Nassau, Suffolk, and Westchester counties,
and finally upstate New York. New York City will reach $15.00 on
December 31 of 2018 or 2019 depending on the
size of the employer, while Nassau, Suffolk, and Westchester
counties will do so on December 31, 2021. In upstate
New York, the minimum wage will reach $12.50 on December 31,
2020, and after that it will increase annually for
inflation until it reaches $15.00. There is no provision for the
minimum wage in any part of New York to exceed
$15.00 in the future. 74
The standard minimum wage for the state will reach $13.50 in
2022, at which point the minimum wage for
metropolitan Portland will be $14.75, or $1.25 higher than the
standard minimum wage, while the minimum wage for
rural areas of the state will be $12.50, or $1.00 lower than the
standard minimum wage.
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G. BUSINESS SIZE
Establishing different wage rates based on employer size may be
one way to mitigate the impact of an increased minimum wage rate on
small employers. New York made such a differentiation
between employers in New York City that had 11 or more employees
or 10 or fewer employees. Likewise, California differentiated
between employers throughout that had 25 or fewer employees or 26
or more employees.
In Vermont, such a differentiation may be complicated by the
high concentration of small
businesses in the State. In the first quarter of 2017, roughly
90 percent of Vermont’s private employers had fewer than 20
employees and roughly 78 percent had fewer than 1